Student loan plan raises questions

Thursday

Jun 12, 2014 at 10:44 PM

By Brian Lee TELEGRAM & GAZETTE STAFF

Two days after President Barack Obama signed an executive order to ensure that student loan repayments remain at an affordable 10 percent of a borrower's monthly income, the leader of a Dudley business college suggested the story of nationwide student debt was slightly exaggerated.

Most students taking out loans today can already cap their loan payments at 10 percent of their incomes, but on Monday, President Obama expanded the Pay As You Earn payment option to students with older loans — those who borrowed before October 2007 or who have not borrowed since October 2011.

The White House said the executive action was expected to help up to 5 million borrowers who may be struggling with student loans.

But Nichols College President Susan West Engelkemeyer said on Wednesday that the average student in the country graduates college with about $30,000 in debt.

"When people are wringing their hands over the amount of debt, in some cases it's overblown because the amount of debt is the cost of an average car," Ms. Engelkemeyer said.

On top of that, she said, college grads over their lifetimes earn up to $1 million more than non-college graduates, according to some studies.

"To me that's a heck of a return on investment; you'd be a fool not to take that one," the college president said.

Ms. Engelkemeyer advised the American public to read the fine print of the commander in chief's executive order, which includes total loan forgiveness after 20 years, or 10 years for those in public service jobs.

"I don't know how taxpayers feel about subsidizing college graduates who overall are some of the highest earners in the nation," Ms. Engelkemeyer said.

It is unlikely a borrower whose loan would be forgiven after 10 years would pay the entire loan, the Nichols president said, because the repayment terms are 10 percent of the difference between the borrower's adjusted gross income and 150 percent of poverty guidelines for the borrower's family size and state.

Using a $30,000 salary, which Ms. Engelkemeyer said was typical of what a recent graduate would earn in a public service job, the present poverty standard of about $17,000 would be subtracted, meaning the graduate would have to pay $130 a month, or 10 percent of $13,000, Ms. Engelkemeyer reasoned.

"You could argue if that's affordable or not affordable, but at that base rate, that means that many students that have average debt and average salaries are probably not going to repay their entire loan," she said.

According to a report issued Tuesday by the White House Domestic Policy Council and Council of Economic Advisers, an estimated 102,531 Massachusetts residents are eligible to benefit from the Pay As You Earn proposal.

The report includes the economic impact of student debt and data on the number of borrowers in each state that would qualify for either the executive action announced Monday or a refinancing bill proposed by U.S. Sen. Elizabeth Warren, D-Mass.

Ms. Warren's proposal on Wednesday failed to garner the needed votes in the Senate to overcome a Republican filibuster.

According to the White House report, Ms. Warren's proposal was said to have enabled about 25 million borrowers to refinance their student loans at lower interest rates, and an estimated 581,000 borrowers in Massachusetts would have been eligible for loan refinancing.

Lynne M. Myers, director of financial aid at the College of Holy Cross in Worcester, said the school embraces the expanded Pay As You Earn program, although student debt at HC has not grown in a number of years, because of set loan limits.

HC students graduate with an average debt of $27,000, which she said was "reasonable."

The college was nonetheless concerned with ensuring that students don't feel they are limited in their career choices because of debt, she said.

Ms. Myers said the Obama program, which also promises better counseling tools for student borrowers, allows students the opportunity to manage their debt while making career choices that fulfill their passions and their interest, which might come through lower paying social justice fields.

The Nichols president agreed with that notion. But Ms. Engelkemeyer suggested there be consensus about which fields should get those incentives.

"Should you get a debt forgiveness because you're going to go into government," whose salaries were "pretty good" and pensions were "sweet," she asked.

"But if you're going into, maybe, public-school teaching or social work, where salaries tend to stay low and it's a service we know is vitally needed, I don't have a problem with that," she said.

At South High Community School in Worcester, guidance counselor Carmen Melendez said she generally supports what the president is offering because money has been a factor for many families not to go to four-year colleges.

As her voice competed with an announcement over the intercom that there would be no after-school activities Wednesday — because of President Obama's commencement address to Worcester Technical High School at the DCU Center — Ms. Melendez said 60 percent of South students come from low-income families.

Those with the academic merit to attend local four-year colleges such as Clark University, Assumption College or Holy Cross are opting for community colleges because of cost, she said, adding it was hard for those students to think about their earning potential and stronger ability to repay loans after earning a bachelor's degree.

For the immigrant population, she added, the borrowing process is confusing and intimidating.

Meanwhile, state Rep. Peter J. Durant, R-Spencer, said he has an overall problem with the way President Obama is increasingly using executive orders to bypass Congress.

"Understandably he's not the only one to ever use this; former presidents used them all the time," Mr. Durant said.

"But it sets such a bad precedent. We have a separation of powers for a reason, as our Constitution calls for.

"That's what our Constitution required from the three branches of government," Mr. Durant said.

"So to continue to just say, 'Well, if Congress won't act I'll do it by myself ...' I'm sorry. We don't have a king, we have a president."